Knorr, Wabtec must end ‘no-poach’ agreements

The Department of Justice reached a settlement with rail equipment suppliers Knorr-Bremse and Westinghouse Air Brake Technologies (Wabtec) to resolve allegations that these companies had for years maintained unlawful agreements not to compete for each other’s employees.

The lawsuit further alleges that the companies entered into similar agreements—generally referred to as “no-poach” agreements—with rail equipment supplier Faiveley Transport before being acquired by Wabtec in November 2016.

The Justice Department’s Antitrust Division filed a civil antitrust lawsuit on April 3 in the U.S. District Court for the District of Columbia to challenge Knorr and Wabtec’s no-poach agreements. At the same time, the Justice Department filed a proposed settlement that, if approved by the court, would resolve its competitive concerns and restore competition for employees.

In a statement, Assistant Attorney General Makan Delrahim said the complaint is “part of a broader investigation by the Antitrust Division” into no-poach agreements. As part of the settlement, Knorr and Wabtec must cooperate with the Antitrust Division “in any investigation into additional no-poach agreements to which they may have been counterparties,” Delrahim said.

The Justice Department said it has also agreed as part of the settlement that it will not bring further civil actions or criminal charges against Knorr or Wabtec regarding any other potential no-poach agreements that the companies disclosed to the Department prior to this lawsuit.

Complaint details

According to the Justice Department’s complaint, Knorr and Wabtec compete with each other to attract, hire, and retain various skilled employees, including project managers, engineers, executives, business unit heads, and corporate officers.

Specifically, the complaint alleges that:

Beginning no later than 2009, Knorr and Wabtec reached agreements not to solicit, recruit, hire without prior approval, or otherwise compete with one another for employees. For example, in a letter dated January 2009, a director of Knorr Brake Company wrote to a senior executive at Wabtec’s headquarters, “[Y]ou and I both agreed that our practice of not targeting each other’s personnel is a prudent cause for both companies. As you so accurately put it, ‘we compete in the market.’”

Beginning no later than 2011, Knorr Brake Company (a wholly-owned subsidiary of Knorr) and Faiveley Transport North America (the U.S. subsidiary of Faiveley before Faiveley was acquired by Wabtec) agreed to get the other’s permission before pursuing each other’s employees. For example, in October 2011, a senior executive at Knorr Brake Company explained that he had a discussion with an executive at Faiveley’s U.S. subsidiary that “resulted in an agreement between us that we do not poach each other’s employees. We agreed to talk if there was one trying to get a job[.]”

Beginning no later than 2014, Wabtec Passenger Transit, a U.S. business unit of Wabtec, and Faiveley Transport North America similarly agreed not to hire each other’s employees without prior approval. For example, in an e-mail to his colleagues, a Wabtec Passenger Transit executive explained that a candidate for employment “is a good guy, but I don’t want to violate my own agreement with [Faiveley Transport North America].”

According to the complaint, the no-poach agreements between Knorr, Wabtec, and Faiveley restricted competition for U.S. rail industry workers, which limited their access to better job opportunities, restricted their mobility, and deprived them of competitively significant information that they could have used to negotiate for better terms of employment.

Compliance warning

“Under the antitrust laws, no-poach agreements that are naked (i.e., not reasonably necessary for a separate, legitimate business transaction or collaboration) eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct,” the Justice Department said.

Since October 2016, the Justice Department has made several announcements that it intends to bring criminal, felony charges against culpable companies and individuals who enter into no-poach agreements. In an exercise of prosecutorial discretion, agency said it will pursue as civil violations no-poach agreements that were formed and terminated before those announcements were made.

Knorr’s and Wabtec’s respective no-poach agreements were discovered by the Antitrust Division and terminated by the parties before October 2016, prompting the Division to resolve its competition concerns through a civil action.

Under the terms of the proposed settlement, Wabtec and Knorr are prohibited from entering, maintaining, or enforcing no-poach agreements with any other companies, subject to limited exceptions. The settlement also requires Knorr and Wabtec to implement rigorous notification and compliance measures to preclude their entry into these types of anticompetitive agreements in the future.

The settlement includes several new provisions that are designed to improve the effectiveness of the decree and the Division’s future ability to enforce it. For example, the parties have agreed that the Division may prove any alleged violations of the decree by a preponderance of the evidence, and that they will reimburse American taxpayers for the costs of investigating and enforcing any violations.